When two goods are complements, how does an increase in the price of one good affect the consumer surplus for the other good?

• A. Consumer surplus for the other good remains unchanged because the goods are unrelated.
• B. Consumer surplus for the other good decreases because demand for both goods falls.
• C. Consumer surplus for the other good increases because consumers substitute away from the more expensive good.
• D. Consumer surplus for the other good increases because demand for both goods rises.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of complementary goods. Complementary goods are products that are typically consumed together, so the demand for one good is linked to the demand for the other.
2. Step 2: Recognize that when the price of one complementary good increases, the quantity demanded for that good usually decreases due to the law of demand.
3. Step 3: Since the goods are complements, a decrease in demand for the more expensive good leads to a decrease in demand for the other good as well, because consumers buy less of both goods together.
4. Step 4: Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. When demand for the other good falls, the consumer surplus for that good decreases because fewer consumers are willing to buy it at the previous prices.
5. Step 5: Therefore, an increase in the price of one complementary good causes the consumer surplus for the other good to decrease, reflecting the reduced demand for both goods.